George Osborne insists he will press ahead with the government's austerity plans despite a warning from the International Monetary Fund that the chancellor should slow the pace of cuts.

On the eve of the latest GDP growth figures for the UK economy, the chancellor said the credibility Britain had built up by setting out a tough package of tax rises and spending plans was "hard won, and easily lost", adding that it would be "a huge mistake to put that at risk".

The IMF's chief economist, Olivier Blanchard, said the time had come for the chancellor to act on the Fund's repeated warnings that if the economy remained weak he should moderate his plans.

Blanchard told BBC Radio 4's Today programme: "We said that if things look bad at the beginning of 2013 – which they do – then there should be a reassessment of fiscal policy. We still believe that. We've never been passionate about austerity. From the beginning we have always emphasised that fiscal consolidation should be slow and steady."

Osborne said he had already adjusted his plans to the weaker-than-expected economy, when he used last month's autumn statement to announce that fiscal consolidation will now extend until 2017-18. "It is credible, it is flexible, and we have already exercised that flexibility," he said.

The Office for National Statistics will publish its first estimate of GDP growth for the final quarter of 2012 on Friday, amid forecasts that the economy has declined by up to 0.5% and is on the brink of a triple-dip recession.

Seizing on Blanchard's remarks, Ed Balls, the shadow chancellor, said: "David Cameron and George Osborne must finally heed the IMF's advice. After two and a half years of flatlining and a double-dip recession the IMF is now clearly losing patience. The longer the government clings to its failing plan, the more long-term damage they will do to our economy."

Nick Clegg conceded in an interview published on Thursday that the coalition had cut capital spending too quickly. "If I'm going to be sort of self-critical, there was this reduction in capital spending when we came into the coalition government. I think we comforted ourselves at the time that it was actually no more than what Alistair Darling spelled out anyway, so in a sense everybody was predicting a significant drop off in capital investment," the deputy prime minister told House magazine. "But I think we've all realised that you actually need, in order to foster a recovery, to try and mobilise as much public and private capital into infrastructure as possible."

Previously Danny Alexander, the chief secretary to the Treasury, has said that even if he had known the economy was going to grow as slowly as it has, he would have done the same.

"We have urged ministers to bring forward infrastructure investment and build thousands more homes, but they have refused to listen," said Rachel Reeves, the shadow chief secretary.

There was a brief outburst of excitement on City trading floors at lunchtime as rumours circulated that the official GDP data had leaked out and that some dealers were acting on data that would show the economy in better health than economists are expecting. There was a sudden blip in the currency markets, but the Office for National Statistics refused to comment.

Osborne, who would have already seen the data before he spoke in Davos, repeated his familiar mantra that "we are walking a difficult road, but we are heading in the right direction".

Speaking a day after David Cameron pledged to try to renegotiate Britain's relationship with the EU, and then offer the public a referendum on EU membership, Osborne backed the prime minister's stance. "Europe needs to change, to meet the expectations of all its peoples, no matter what country they live in," he said. "Europe has to become a competitive place, where companies can be secure, jobs are created, and young people have careers."